Various cryptocurrencies such as bitcoin and ethereum soared at the end of 2020 and into the new year, albeit with a lot of volatility, in typical crypto fashion. The huge burst of activity has highlighted several banks that are catering to crypto customers by leveraging blockchain technology to develop specialized payments systems and offer niche banking products. And many of these banks are being rewarded by shareholders for their innovation. Here are three banks that have big plans for blockchain technology and cryptocurrencies.
1. Silvergate Capital
The top-performing bank stock of 2020, Silvergate Capital (SI -1.92%) went public toward the end of 2019, opening around $13 per share. Today, it trades for roughly $90. The bank, which has $5.6 billion in assets and is based in La Jolla, California, is most famous for the Silvergate Exchange Network (SEN), a digital payments network that can instantly clear transactions in U.S. dollars around the clock, 365 days a year, between two users in the network. This is ideal for institutional crypto traders and crypto exchanges because cryptocurrencies are always trading.
As one of the first banks to build this kind of network, Silvergate has a first-mover advantage. The bank has onboarded 76 crypto exchanges and 600 institutional investors onto the network, and the larger it gets the more attractive it becomes for other customers to join. In the fourth quarter of 2020, there were a record 90,000-plus transactions conducted on SEN for a total volume of $59 billion. That's a roughly 530% increase on transactions compared to the fourth quarter of 2019. Silvergate's chief strategy officer, Ben Reynolds, said on the bank's recent earnings call that the company also has 200 SEN prospects in its pipeline. New customers bring in lots of non-interest-bearing deposits for the bank, while transactions bring in fee income.
Silvergate is also building out other products related to crypto. The bank recently finished its pilot on a new lending product called SEN Leverage, which allows customers to obtain lines of credit in U.S. dollars that is collateralized by bitcoin. The product is off to a great start after exiting its pilot program at the end of the third quarter, growing total SEN loan volume from $35.5 million at the end of the third quarter to more than $82 million after the fourth quarter. Silvergate also launched a bitcoin custody solution in the quarter, and Reynolds said launching new products is a key piece of the bank's growth strategy.
2. Signature Bank
The nearly $74 billion asset Signature Bank (SBNY 1.00%), which is based in New York City, has also jumped into the world of cryptocurrency with its Signet digital payments system. Signet leverages blockchain architecture to create a real-time payments system, which, like Silvergate's SEN, also allows commercial clients on the network to instantaneously send and clear payments to one another. The platform has helped the bank bring in $10 billion in deposits, which is way more than Silvergate Capital, although Silvergate is a much smaller bank. Signature also has the top five crypto exchanges on Signet.
Signature CEO Joseph DePaolo said the network is "growing by leaps and bounds." He also said the bank is continuing to build the ecosystem using the platform, and that he sees the potential for other ecosystems beyond crypto to use Signet.
3. JPMorgan Chase
You might never know it by the way Jamie Dimon sometimes talks about bitcoin, but JPMorgan Chase (JPM -0.82%) is doing all sorts of innovative and interesting work with blockchain technology. In October, the bank launched its own digital coin, the JPM coin, in order to conduct global payments activity, in what seems similar to the payments offerings of Signature Bank and Silvergate Capital. JPMorgan also has its own digital currency division called Onyx with more than 100 employees.
Additionally, the bank has its own Blockchain Center of Excellence, which actively researches blockchain and its potential uses in order to develop its own technology and try out solutions across its various business divisions. When it launched the JPM coin, Takis Georgakopoulos, the bank's global head of wholesale payments, said he could see a ton of potential uses in the payments space for blockchain. For instance, he said it could help banks confirm that people inserted their account information correctly, helping to avoid rejections on payments. He also said digital currencies could remove a lot of expenses at banks such as the cost of processing paper checks.